How to Start Investing While on Active Duty

The Thrift Savings Plan (TSP) is a retirement savings program similar to a 401(k), available to federal employees and military personnel. If you're on active duty, you're automatically enrolled after 60 days, with a default contribution of 5% of your basic pay.

Understanding TSP Contribution Limits and Matching

For 2025, the TSP allows contributions up to $23,500 annually. If you're over 50, you can add $7,500 in catch-up contributions, and if you're between 60 and 63, an additional $11,250 is allowed. The total annual limit is capped at $70,000. Under the Blended Retirement System (BRS), the government matches up to 5% of your contributions. To make the most of this, aim to contribute at least 5% of your pay.

Traditional vs. Roth TSP: Choosing the Right Option

The TSP offers two types of accounts: Traditional and Roth. Here's a quick comparison to help you decide:

"The Thrift Savings Plan gives you a simple retirement strategy that makes saving money easier." - Military OneSource

TSP Fund Options and Performance

The TSP provides six core investment options, each with varying levels of risk and potential returns. Here's how they’ve performed over the past decade (as of July 31, 2024):

• G Fund (Government Securities): 2.4%
• F Fund (Fixed Income): 1.8%
• C Fund (Common Stock): 13.1%
• S Fund (Small Cap Stock): 9.5%
• I Fund (International Stock): 5.2%
• L Funds (Lifecycle): Adjust automatically based on your target retirement date.

For long-term growth, consider diversifying with a mix of the C, S, and I Funds.

Maximizing Your TSP Strategy

To get the most out of your TSP, aim to contribute the maximum annual limit of $23,500. Thanks to compound interest, even small contributions can grow significantly over time. If you're earning tax-exempt combat pay, consider putting it into a Roth TSP for tax-free growth. Additionally, you can combine this with the Savings Deposit Program (SDP) for short-term gains during deployments.

Using the Savings Deposit Program (SDP)

The Savings Deposit Program (SDP) is a Department of Defense initiative that complements the TSP by offering a guaranteed 10% annual return, compounded quarterly. It’s specifically available to service members deployed in combat zones.

SDP Eligibility Requirements

You can participate in the SDP if you:

• Are deployed in a designated combat zone
• Serve for at least 30 consecutive days or one day in each of three consecutive months
• Receive imminent danger pay or hostile fire pay
• (For Guard and Reserve members, this applies when on active-duty orders)

How SDP Deposits and Withdrawals Work

You can deposit up to $10,000 during each deployment, in increments of $5. Deposits can be made via cash, check, or monthly allotments. To maximize interest, make deposits by the 10th of the month.

For example, a $6,000 deposit over eight months can earn approximately $408.38 in interest, while a full $10,000 deposit can yield around $1,000 annually. The program continues for 120 days after your return from deployment, with interest accruing for the first 90 days. After that, your balance is automatically transferred to your bank account unless you request an earlier transfer through MyPay.

Emergency Withdrawals and Restrictions

The SDP is meant for savings, not spending. Early withdrawals require approval from your commander and must be for genuine emergencies related to health or welfare. To request an early withdrawal, you’ll need to submit an askDFAS ticket and provide a signed authorization letter from your commanding officer.

Strategic Use of Both Programs

By combining the TSP and SDP, you can address both short-term and long-term financial goals. The SDP offers a safe way to grow your savings during deployments, while the TSP helps you build a strong retirement strategy through consistent contributions and compound growth. Start as early as possible and make regular contributions to both programs to maximize their benefits.

How to Build Your Investment Strategy

Creating a strong investment strategy as an active-duty service member means using the unique tools available through military systems and developing consistent, disciplined habits. The goal? Setting up automated systems that keep your investments on track, even during deployments or the unpredictable demands of military life.

Setting Up Automatic Contributions

Automation is the backbone of consistent investing. Military pay systems like myPay make it simple to allocate portions of your paycheck to investment accounts before you even see the funds.

Setting Up TSP Contributions Through myPay

You can easily contribute to your Thrift Savings Plan (TSP) by logging into the myPay website and adjusting your contribution percentages. At a minimum, allocate 1% of your basic pay to ensure consistent contributions.

To maximize your TSP contributions, use the "How Much Can I Contribute?" calculator on the TSP website. This tool helps you figure out the exact dollar amount to deduct each pay period, ensuring you stay within IRS limits while optimizing your savings.

Automating SDP Contributions During Deployment

When deployed to a combat zone, you can set up automatic allotments to the Savings Deposit Program (SDP) through your finance office. This ensures you consistently benefit from the program’s guaranteed 10% annual return without needing to remember monthly deposits.

Creating Multiple Investment Streams

Diversify your contributions by automating them across different accounts. For example:

• Allocate 15% of your basic pay to TSP.
• Use special pay during deployments for SDP contributions.
• Direct a portion of your income to a taxable investment account for medium-term goals.

This approach not only simplifies your finances but also reduces the temptation for unplanned spending. With automation, you’ll build a diversified portfolio, including simple, low-maintenance options like index funds.

Getting Started with Index Funds

Once your contributions are automated, consider adding index funds to your strategy. These funds provide broad market exposure and long-term growth potential, making them an excellent fit for the demands of military life.

Why Index Funds Work for Military Life

Index funds are a great match for the military lifestyle because they offer instant diversification, spreading your investments across many assets. Instead of betting on individual stocks, you’re tracking the performance of entire markets. And the numbers speak for themselves: over the past 15 years, 9 out of 10 actively managed funds failed to outperform the S&P 500 benchmark. In 2024, only 13.2% of actively managed U.S. stock funds and ETFs beat the S&P 500.

"Index funds are a low-cost way to track a specific group of investments, which can be more broadly diversified than individual stocks and simpler to buy than each of the individual holdings within the index." - Autumn Knutson, founder and lead financial planner at Styled Wealth

Choosing Your First Index Funds

Start by setting clear goals. Are you saving for retirement, a home, or general wealth building? For long-term goals like retirement, a simple portfolio allocation of 85% stocks and 15% bonds is a good starting point for beginners. You can achieve this with just one or two index funds.

When picking funds, focus on low expense ratios - smaller fees mean more of your money stays invested. Here are some popular options to consider:

Getting Started with Small Amounts

You don’t need a large sum of money to begin. Many index funds have no minimum investment, so you can start with whatever amount fits your budget. Consistency is key - regularly investing even $50 a month can grow significantly over time thanks to compound interest.

Monitoring Your Index Fund Investments

Index funds are designed to be low-maintenance, which makes them ideal for military members with busy schedules. Once your investments are set up, check periodically to ensure the fund is tracking its underlying index as expected.

Warren Buffett, one of the most successful investors in history, keeps it simple:

"The average investor needs only to invest in a broad stock market index to be properly diversified."

This straightforward approach eliminates the stress of picking individual stocks or timing the market, allowing you to focus on your military career while your investments work quietly in the background.

Protecting Your Investments During Military Service

Military service brings unique financial challenges, but with the right legal protections and smart strategies, you can safeguard your investments while serving. Active-duty service members have access to specific rights and tools that can help them maintain financial stability and grow their wealth.

Your Rights Under the Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA) offers financial protections that can ease the burden of managing debts and investments during active duty. By understanding these rights, you can redirect funds toward building your financial future.

Interest Rate Caps on Pre-Service Debts

One key benefit of the SCRA is the cap on interest rates for debts incurred before active duty. These rates are limited to 6% annually, which can significantly reduce monthly payments and free up funds for investments. However, this protection only applies to debts taken on before your current period of service.

How to Access SCRA Benefits

To take advantage of SCRA protections, you need to request them actively. Submit a written request to your lenders, along with a copy of your active-duty orders. If you're unsure where to start, your local Armed Forces Legal Assistance Office can guide you through the process.

Other Financial Protections Under SCRA

Beyond interest rate reductions, the SCRA provides additional safeguards to help stabilize your finances:

• Foreclosure protection: This extends for one year after leaving active duty.
• Postponement of court proceedings: Under certain conditions, court cases can be delayed for at least 90 days.
• Protection from default judgments: If military duties prevent you from appearing in court, this protection can help.

These rights apply to active-duty service members across all branches, including Reserve and National Guard personnel serving on federal orders for more than 30 consecutive days.

"The Servicemembers Civil Relief Act (SCRA) provides legal and financial protections to those who have answered the Nation's call to serve." - consumerfinance.gov

The SCRA was created to reduce financial stress, allowing service members to focus on their duties while maintaining their financial goals. With these protections, you can better manage potential disruptions and stay on track with your investment strategy.

Handling PCS Moves and Taxes

Frequent relocations, or Permanent Change of Station (PCS) moves, are a reality of military life. While they can be challenging, careful planning and awareness of tax benefits can help you keep your investment plans intact.

Securing Your Investment Accounts During PCS Moves

Start preparing for your next PCS move as soon as possible. Create a master list of all your financial accounts, including your Thrift Savings Plan (TSP), brokerage accounts, and any other investment accounts. This ensures you can easily access important information during transitions. Missing bills or statements could harm your credit score or disrupt automated contributions to your investments.

Tax Benefits of Maintaining State Residency

Military members can retain their home state residency for tax purposes, even when stationed elsewhere. This advantage can lead to significant tax savings, particularly for taxable accounts outside of the TSP.

Tax Perks for Combat Zone Deployments

Deployments to combat zones offer unique tax benefits. Pay earned in these zones is exempt from federal taxes, allowing you to allocate more of your income toward investments. To notify the IRS, send an email to combatzone@irs.gov with your details, and write "COMBAT ZONE" at the top of your Form 1040 when filing your tax return. Additionally, the IRS automatically extends tax deadlines for those deployed to combat zones.

Keeping Investment Records Organized